Pension LS recycling calculation

kidmugsy

ffacoffipawb wrote: »

Salary sacrifice gets round that. And if they tax employer contributions that will open up a whole new can of worms.

Never mind leftie zealots, I'd abolish salary sacrifice. It's absurd to institute our tax and national insurance system (though "system" is perhaps a bit rich) and then provide the SS method of avoiding it, without any public interest case being made for doing so - or at least none I've ever seen. By contrast, there is a public interest case made for ISAs (I find it unpersuasive, but at least it's made), pensions, and so forth.

jamesd

There is at least one strong public interest case for salary sacrifice: incentivising pension contributions for basic rate tax payers vs higher rate due to the NI difference, so basic rate get at least 32% and higher rate 42% combined income tax and NI relief. It' one of the easiest ways there is to boost the relief for basic rate to 30+% because the laws and regulations for it already exist.

Salary sacrifice is also used for other worthy things like insurances of various types that protect employees from life's adverse events, a useful use of what would otherwise be NI money to serve the same purpose as NI, just as pensions do.

If you look at what's eligible for salary sacrifice it's almost all social good and protection items in the same theme as NI and what it pays for.

kidmugsy

jamesd wrote: »

There is at least one strong public interest case for salary sacrifice: incentivising pension contributions for basic rate tax payers vs higher rate due to the NI difference, so basic rate get at least 32% and higher rate 42% combined income tax and NI relief.

Mm, but if the next government opts for the 30%-relief-for-everyone route, that would surely remove any case for salary sacrifice for pension contributions?

I take your point about the other uses for SS. I don't, however, find it persuasive. If people want to insure against adverse events, let 'em; why subsidise it for some people but not others?

jamesd

30% for everyone has to find some way to deal with employer contributions that can today deliver as much as 45.8% combined income tax and NI saving for basic rate if all employer saving is passed to the employee. Better to embrace and encourage salary sacrifice than try to deal with the complexities of thing like defined benefit schemes delivering that whole 45.8% gain to their members vs those who deliver 32%.

There's nothing stopping other employers from offering salary sacrifice and delivering the same benefit to their employees. Those who don't work are an interesting case, though.